The British Pound Australian Dollar exchange rate recovered from the week’s lows on Wednesday, but UK investors remain concerned about Britain’s growth outlook; especially after recent ecostats. GBP AUD has been widely fluctuating around the level of 1.66 this week.
Pound (GBP) Recovers from Dips Despite UK Growth Concerns
The Pound performed strongly on Wednesday as it rebounded from its Tuesday lows and was supported by Britain’s January manufacturing PMI from Markit, which slipped from 56.1 but remained high at 55.9 as projected.
The print also revealed that British factory costs have risen at their steepest rate in the history of Markit’s records, bolstering GBP demand.
However, there are underlying concerns about the future of the UK economy among analysts after other recent publications.
Tuesday’s UK consumer credit figure plummeted from 1.9b to 1.0b, indicating that UK consumers massively scaled back borrowing in December.
This, as well as recent UK growth results indicating that consumer activity was the main reason behind Britain’s recent strong growth, has left analysts concerned that UK growth could slow considerably in the coming year.
Australian Dollar (AUD) Volatile on Ongoing Trump Concerns
The risky Australian Dollar has seen mixed movement this week, allowing the Pound to recover by the middle of the week.
Concerns about US trade under the US Trump administration have kept risk demand low, but dovish comments on the US Dollar from Trump’s team has had the opposite effect.
Meanwhile more domestic factors have also caused mixed ‘Aussie’ movement. The AiG’s January manufacturing PMI fell from 55.4 to 51.2 which limited AUD demand.
On the other hand, a solid manufacturing PMI from China increased hopes that China-Australia trade would remain strong in the coming months and that prices of iron ore, Australia’s most lucrative commodity, would not fall considerably as feared at the beginning of the year.
British Pound Australian Dollar Long-Term Forecast: UK Growth Plunge Could Undermine GBP
The National Institute of Economic and Social Research (NIESR) published a worrying forecast about UK growth and inflation on Wednesday.
The group predicts that UK growth will slow to 1.7% in 2017, partially due to a surge in inflation to 3.3% as the low value of the Pound finally begins to hit consumer prices.
NIESR also predicts the Bank of England (BoE) will ignore the inflation surge and keep UK interest rates at their current record-low of 0.25% in order to accommodate for possible economic damage from the Brexit process.
Following recent indications that the UK services sector was responsible for almost all recent UK growth coupled with consumers preparing to spend less as prices rise, it’s becoming increasingly possible that British growth will slump in the coming year as consumer activity in the services sector plunges.
As a result, it could be a bearish long-term period for the Pound. NIESR predicts growth will improve slightly in 2018 and inflation will slip, but does not expect an interest rate hike from the BoE until mid 2019.
Interbank GBP AUD Exchange Rate
At the time of writing, the British Pound Australian Dollar exchange rate trended in the region of 1.66, while the Australian Dollar Pound exchange rate trended at around 0.60.
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